CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

A company acquires new depreciable assets. Which of the following combinations of estimated salvage value and useful life will most likely produce the highest net profit margin? Assume U.S. GAAP.
A. Low salvage value estimates and long average lives
B. High salvage value estimates and short average lives
C. High salvage value estimates and long average lives
Explanation: A high salvage value estimate reduces the depreciable base and thus depreciation expense; long average lives reduce the annual depreciation expense for any given depreciable base. The combination of the two would result in the lowest depreciation expense, which leads to the highest net income and profit margins.

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